When all co‑products have alternatives

If all co-products of a joint production have an alternative production route, only one of these co-products can be the determining one.

If more than one co-product of the production system appears to be determining, then the two conditions below will be able to provide an unambiguous identification of which of these is the determining one.

The two conditions are:
1) To be determining, a co-product shall, either alone or as part of a combination of co-products, provide an economic revenue that exceeds the net marginal cost of changing the production volume.
2) To be determining, the product or product combination shall have a larger normalised market trend than any other joint product or combination of co-product that fulfil the first condition.

The reason why the normalised market trend plays such an important role here, is because we are studying changes in outputs of products that are produced in fixed quantities (from the co-producing activity).

When the demand for one of the co-products change faster than that of the other:

• the co-product (combination) with the largest change in demand will determine the output, when its revenue is adequate for the co-producing activity to change, and
• the co-product with the smallest change in demand will impose a constraint on the ones in higher demand, when the revenue from more co-products are required for the co-producing activity to change.

To identify the determining product when all joint products have an alternative production route, you can follow this stepwise procedure:

• First, exclude joint products that provide insufficient revenue to contribute to the ability of a combination of the remaining joint products to exceed the net marginal cost of changing the production volume, as default set to 80% of the total revenue. For example, a soy mill can obtain 57% of its revenue from protein meal and 42% from soy oil, while free fatty acids contribute less than 1% of the revenue. Free fatty acids cannot play a role in raising the revenue of either of the other co-products above 80% and can therefore be excluded from further consideration. This step is optional and only included to avoid unnecessary data collection for the following steps.
• Secondly, calculate the market trends of all remaining joint products, normalized to the relative outputs of the products from the co-producing activity. For example, if the market for protein meal has an annual trend of 3.7 Tg crude protein and the market for vegetable oil has an annual trend of 3.1 Tg, and the relative output of a soybean mill is 1.9 kg crude protein per 1 kg soy oil, the normalized market trends are 3.7/1.9 = 1.95 and 3.1/1 = 3.1, respectively. Thus, the oil has the largest normalized market trend of the two co-products from the soy mill.
• Finally, starting with the joint product with the largest normalized market trend, consider whether the revenue from this product exceeds 80% of the total revenue, in which case it is the determining product. Else, add the joint product with the next largest normalized market trend, and continue until the sum of revenues exceeds 80% of the total revenue. The last product added will be the determining product, since the demand for this co-product imposes an economic constraint on the ability of the combination to change its output. In the soy mill example, the last added product will be the crude protein, which can therefore be identified as the determining product of the soy mill.

The other co-products (the non-determining ones) are referred to as by-products or dependent co-products.

It is not very often that more than one co-product can provide adequate revenue alone, but is quite interesting when it happens, since the high revenues of both co-products relative to production costs might have consequences for the entire market. Such a joint production has a large potential to outcompete other production systems. This situation can be illustrated with this hypothetical example:
Given two co-products A and B with revenues of 100 and 50 per simultaneous produced amount, respectively, as determined by the production costs of the alternative marginal production. If the co-producing activity has a net marginal production cost below 50 for the combined amount of A+B, the co-product with the largest market trend will provide enough revenue alone to be able to cover the cost of the combined production of A+B, and thus determine its production volume.

The situation where only a combination of products can provide adequate revenue can be illustrated with this hypothetical example:
Given two co-products A and B with revenues of 100 and 50 per simultaneous produced amount, respectively, as determined by the production costs of the alternative marginal production. If the co-producing activity has a net marginal production cost between 100 and 150, the revenue from both products are needed to fulfil the first condition. In a competitive market, the co-product with the largest market trend will be sold at the price of the alternative production cost, while the surplus co-product with the smallest market trend will – in order to clear the market – be sold at the lowest price necessary to cover the production costs. Since the price of the co-product with the smallest market trend cannot be lowered further without bringing the revenue below the marginal costs, the amount that can be sold of this co-product provides a constraint on (determines) the production volume of the co-producing activity and this co-product is thus the determining co-product.

Read more

• Further theory on marginal production costs For a co-product (or a group of co-products) to influence and be determining for the production volume of an activity, the revenue that it provides must exceed the marginal production costs.
• Further theory on adequate revenue If only one of the co-products from a joint production provide adequate revenue to cover the marginal production costs this is the determining product.
• Further theory on market trends It is the overall market trend which is of interest and not the direction of the change in demand implied by the specific decision studied, because it is the same suppliers that will be affected by an increase and a decrease in demand.
• Further theory on normalising market trends Before comparing the generic market trends of the co-products they have to be normalised to the relative outputs of the products from the co-producing activity.
• Soybean and oil co-product system An example on finding the determining product for the joint production of soybean meal and oil, where both products have alternative production routes.
• Revenue for molybdenum An example on identifying the revenue for the co-product molybdenum.
• Production costs of gold An example on identifying production costs of gold.
• Adequate revenue of copper An example were only one of the co-products from copper mining operation provides adequate revenue.
• Normalising market trends of sunflower oil and meal An example on normalising the general market trends for vegetable oil and protein meal to the relative outputs of sunflower oil and sunflower meal.

How to cite this: Consequential-LCA (2015). When all co-products have alternatives. Last updated: 2026-02-12. www.consequential-lca.org.